Cash Flow and the Five Common Problems Faced by Australian SMEs.

cash flow problems

Cash Flow and the Five Common Problems Faced by Australian SMEs. 

Business owners are often gripped by two fears: running out of funds and facing cash flow problems. Not receiving a “predictable paycheck” is a daunting prospect, however, the rewards of owning and operating your own enterprise are more rewarding.  

This doesn’t mean you should push your fears aside entirely. Did you know lack of funds is the second biggest factor why businesses fail? Your business doesn’t have to be this statistic. 

Tackling challenges head-on is an excellent way to ensure you always have sufficient funds to operate your business.  

Listed below, are five of the most common cash flow problems faced by Australian small-medium enterprises: 

1.Partial or Late Payments. 

Outstanding payments are a huge challenge for businesses. According to a study from GrowExim.com (see below) –  up to 60% of invoices are paid past the expiry date. This is a major cash flow concern because you’ve completed the work but haven’t received the payment for it. It means you have lost the profit and whatever the expenses were to complete the work.  

Most SMEs spend up to 15 days a year chasing late payments. This same study found that small businesses wait up to 72 days before their invoices are cleared. That’s tough! 

Even if you offer partial payments, it will tie up your cash.  

2. Disorganisation 

A study performed by Staples (see below) discovered that 3 out 4 struggling SMEs believe disorganization led to a loss in productivity. In addition, up to 40% aren’t skilled at number crunching. These are huge challenges when it comes to maintaining consistent cash flow.  

You may face bankruptcy before you know it! Planning, budgeting, tracking, and forecasting are integral skills for making your SME succeed. Without these skills, you may be in the dark about the state of your business’s finances. 

3. Sales Issues

Whether your sales have slowed down or you underestimated the sales volume, when the incoming revenue slows down, cash flow is affected. Sometimes this halt can be caused by external variables such as weather (for brick and mortar shops), market fluctuations, global crises, etc. At other times, your business’s marketing may be the cause. Perhaps the lead nurturing is the issue. Oftentimes, it’s a mix of internal challenges and uncontrollable external incidents that affect your sales goals. 

4. Excess Inventory. 

Inventory can be a major issue if you sell products or are in retail. It is also the most valuable asset. Inventory helps you produce more cash flow. But the cost to generate each product is more than what it cost you to get it from the supplier. When you keep stock on hand, you can expect holding costs too. Having some inventory on hand is vital for retail operations but having too many leads to expensive stock-outs. 

5. Too much spending. 

Yes, you have to spend money to make money, but spending too much isn’t a good thing either. If your overhead costs are out of control, it’s time to evaluate where your big expenses are and eliminate or reduce them. 

Every Australian SME dreams of making lots of money and growing. But this same goal can lead to bankruptcy. With some proactive thinking and planning, you will maintain regular cash flow and continue to thrive in your business.  

Ainsworth Accounting Solutions are here to help you with any of your business accounting needs and we’d be happy to speak with you.

Simply contact us today to take the next step to a better financial future! 

Resource Credits: 

Used with gratitude.

GrowExim.com – https://grow.exim.gov/blog/key-facts-and-figures-on-late-invoice-payments

Staples.com – https://news.staples.com/press-release/products-and-services/staples-study-reveals-small-business-owners-attitudes-2018/

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